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Management of Medium-Size / Revamping Projects Oil & Gas Downstream Projects 4. Contracting for EPC phase
RC - PR GES - 08171_A_A - Rev.1 - 18/07/2013
Management of Medium-Size / Revamping Projects: course content I.
Introduction
II.
Preliminary Studies
III. Basic Engineering (or FEED) IV. EPC Contracting V.
Organization and Engineering
VI. Procurement VII. HSE, Quality and Risk Management IX. Construction and Fabrication Management X.
Completion / Commissioning / Start-up / Closure
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VIII. Project Control (cost/schedule)
2
Contracting Objectives / Strategy
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RC - PR GES - 08171_A_A - Rev.1 - 18/07/2013
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Objectives
Once the FEED is complete and the project approved: • Confirm the expected contract scope − Engineering Services − Equipment supplies − Fabrication, Construction, Installation
• Confirm Engineering contract type (Lump Sum or Reimbursable) • Select the Engineering Contractor(s) • Select LLI suppliers and place early orders if any
Process should comply with Owner requirements
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• Tendering policy, standard contractual terms, legal reviews • Authority approval levels, exception/waiver rules • Project cost/schedule constraints
4
Owner level
What does that mean for Owner ? • • • •
Owner has to take into account: • • • •
His own contracting rules and Project Management standards His internal resources available (or not) The overall project size: Revamping projects may not need splitting Availability, qualification, experience and management of contractors
Contract Strategy is critical for project cost and schedule performance
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How many contracts ? How to separate the Project into sub-projects ? Where to place interfaces ? how to minimize them? What type of contracts to be used ?
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Contracting Objectives / Strategy
Contract: agreement between two or more parties, by which they commit themselves to fulfil pre-defined obligations
EPC contract for a Medium-Size / Revamping project: • Typical agreement between Owner and one Engineering Contractor • Typical Scope: Engineering, Procurement, Construction, till handover
EPC Contract: the tool by which, under certain conditions: • Contractor agrees to carry out the execution of the approved project • Owner agrees to compensate Contractor, according to contract terms
There are many subtle differences between a contract and a PO
Pay attention to: placing an order for a contract is fundamentally different to place an order for materials or equipments ... see next page
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Contracting Objectives / Strategy
CONTRACT In general will include several engineering … fabrication, construction
PURCHASE ORDER disciplines: For an equipment or materials issued from “standard” fabrication
May be performed at several sites including the final Fabrication will take place at supplier’s and /or subproject site supplier’s premises The contract documents are based on Company’s The purchase order is based on supplier’s definition as detailed requirement agreed by buyer The result of the work will be checked at the Owner The result of the supply will be agreed at delivery (with Site a warranty period) Overall responsibility of the Work, liability could be Responsibility limited to the supply and the compliance very large. i.e 100% with the specification.
May endorse several orders from the Company
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May be used for “packages”, several equipment for a specific process
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Payment can be by unit rates, time rates, progress, Payment through milestones is the normal procedure milestones
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New LPG tank + compressor LPG Rundown storage & loading Battery limits
LPG Loading & circulation pump
Boil off gas compressor LPG Storage tank © 2011 - IFP Training
How many contracts would you go for? What scope? Which type? RC - PR GES - 08171_A_A - Rev.1 - 18/07/2013
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Interfaces Examples of Interfaces Management,… Interconnecting Piping, Electricals, Controls…
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A few key questions Are there any preferred Vendors for specific equipment ? Why ?
Do you have any black-listed suppliers ? How should Contractors manage this ?
How is Cost important vs Schedule ? Is there a schedule window ?
What qualified resources does Owner have now ? And in the future ?
What can be the impact of the project construction on Facility performance ?
What is the level of knowledge of the plant by each Contractor ?
Have Contractors good relationship with local authorities ? Is it important ?
Which Contractors do you really trust ? Why ?
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EPC Contract scopes and types
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Possible scopes
Separate contracts • Not too common in Revamping projects (too many interfaces) • Owner keeps better control of activities, but needs resources
Combined contracts • EP: Engineering, Procurement (transportation may be included or not), and usually construction & commissioning assistance • EPC: Engineering, Procurement, Construction/Installation (Operations taking care of Commissioning/Startup). Common for Revamp projects • EPCC: E.P.C. + Commissioning • EPCCS: E.P.C. + Commissioning and Startup (very seldom for Revamps, but possible for Medium-Size grassroots projects, with Owner-loaned team)
Although Procurement is always included in the scope, the EPC contractor may have limited decision authority (sometimes none…)
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Possible scopes SEPARATE CONTRACTS
Pre-FEED, FEED, EPCI
Pre-FEED, FEED, EPCC
TURN-KEY
PRE-FEED
PRE-FEED
PRE-FEED
PRE-FEED
BASIC or FEED
BASIC or FEED DESIGN
BASIC or FEED DESIGN PROCUREMENT SERVICES FOR LONG LEAD ITEMS
BASIC or FEED DESIGN
PROCUREMENT
PROCUREMENT SERVICES FOR
LONG LEAD ITEMS
LONG LEAD ITEMS
DETAIL ENGINEERING
DETAIL ENGINEERING
DETAIL ENGINEERING PROCUREMENT
PROCUREMENT
PROCUREMENT
ASSIGNMENT
DETAIL ENGINEERING
PROCUREMENT
LONG LEAD ITEMS SUPPLY OTHER EQUIPMENT
SUPPLY
LONG LEAD ITEMS
ASSIGNED L.L. ITEMS
BULK MATERIALS
CONSTRUCTION
SUPPLY
OTHER EQUIPMENT
OTHER EQUIPMENT
OTHER EQUIPMENT
BULK MATERIALS CONSTRUCTION INSTALLATION
BULK MATERIALS
BULK MATERIALS
CONSTRUCTION
CONSTRUCTION
COMMISSIONING
COMMISSIONING
COMMISSIONING AND START UP
OPERATING TESTS
OPERATING TESTS
OPERATING TESTS
OPERATING TESTS
PERFORMANCE TESTS
PERFORMANCE TESTS
PERFORMANCE TESTS
PERFORMANCE TESTS
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COMMISSIONING
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Most common types
Lump Sum • Pros: clear definition of work, final price fixed, Contractor responsibility • Cons: long tendering period before contract award, rigidity, schedule • Common for Grassroots (even medium-size), difficult for Revamps
Reimbursable • Pros: quick contract award, global project schedule shortened, flexibility • Cons: final price not firm, large Owner supervision team • Owner may be assisted by a PMC (Project Management Consultant)
Payment on behalf:
similar to Reimbursable
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• Orders and Subcontracts placed by Contractor and paid by Owner • Pros: quick contract award, global project schedule shortened, flexibility • Cons: Owner directly exposed to Sub-Contractors and Vendors
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Variants
Lump Sum Turn Key: includes S/U (infrequent for revamp)
Reimbursable + Incentives: improves Contractor motivation • Target Price + bonus/malus • Incentive based on performance indices
• Schedule incentive • Cost + Fixed Fee (common for Umbrella contracts)
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Risk for owner Remaining risks for the Owner: Owner prepares the Plant base description (wrong description extra costs)
Owner is responsible of the Plant performance once the project is started
Plant incidents during project construction are typically not compensated
Owner has to manage early interface risks (FEED, early contracts, LLI)
An endorsement process is organised and put in place to reduce above risks
Owner has limited flexibility to make late scope changes (even if justified)
Schedule overruns may not be easy to recover and compensate
Too few Contractors able to perform the scope restrict Owner options
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Risk for owner
Mechanical completion
Construction and pre-commissioning
Punch lists
Commissioning
Ready for Commissioning (mechanical completion)
Ready for start-up
Start-up and performance tests
warranty period 18 months or 24 m
Provisional acceptance
Final acceptance
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Direct EPC Contracting option Idea Contracting Proceed to Concept or CFT
Concept and/ or Direct CFT
Approval and Contract Award
Detailed Engineering
Procurement (Simple Projects) Proceed to Basic
(Fabrication),Construction,
Basic (or FEED) Engineering
Commissioning, Start-Up, Perf.Tests Mechanical Completion Provisional Acceptance
Direct preparation of Project definition & requirements for CFT FID after potential Contractors Tenders evaluation & selection Depends on Contractors willingness to quote on this basis May allow alternate designs comparison(e.g debottlenecking)
Guarantee Period
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• • • •
Final Acceptance RC - PR GES - 08171_A_A - Rev.1 - 18/07/2013
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Long Lead Items management
Long Lead Items / Critical Equipment should be limited to: • Equipment that cannot be delivered on time at site if selected and purchased at EPC Contract time (possible examples: LNG Tanks, large rotating equipment, MCHE, extra heavy vessels, pipelines materials…) • Equipment requesting rapid specific design finalization to fit the requirement of the project (possible examples: air coolers for air cooled modularized LNG Plant) • Equipment that Owner desires to select before EPC Contract Award for “standardisation” purpose (example: control systems)
For an EPC contract, all tasks regarding the procurement and the initial steps of the LLI supply remain under the responsibility of the Owner
The endorsement by EPC Contractor of the LLI supply has to be implemented as early as possible during the tendering phase
If applicable, Licensor packages may be considered as LLI (EPC Contractors are very reluctant to accept the Licensors guarantees)
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EPC Contract bidding process
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EPC Contract bidding process
CONTRACT STRATEGY PLAN
Contracts Scope / Split
COORDINATION MEETING
Identification of suitable Tenderers Tenderers
Selection
Award type / Schedule
PRE QUALIFICATION TENDER ISSUE PERIOD BIDDERS LIST
Unpriced / Priced Evaluation Exact Terms & Conditions + Scope
Tenderers complete CFT, clarification notices issued
TENDER EVALUATION
PREPARE CALL FOR TENDER (CFT)
Ranking & Selection
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APPROVAL
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Contract Initialling
RECOMMENDATION TO AWARD
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Call for Tender documents INSTRUCTIONS TO TENDERERS (Introduction & Instructions)
ITT
AGREEMENT & ANNEXES (Terms & Conditions)
AGR.
EXHIBITS & Attachments (Scope & Requirements) FEED dossier
Company Items
Particular Conditions
J
Subcontractors& Vendors
G
Coordination Procedure
K
Contractors Organisation
H
Quality
L
HSE
Scope
E
B
Schedule of Prices
F
C
Work Time Schedule
D
Performance Guarantees
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I
A
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Typical tendering procedure (medium-size project) Five Main Steps 3 months
4 months
3 months
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??
Prequalification of potential Tenderers Preparation of the call for tenders (by Company) Conditions for tender preparation & issue Contract conditions (clauses, prices, etc.) Scope of work and specifications Tenders preparation (by Tenderer) Price preparation (critical path) Technical and unpriced commercial Priced Commercial Tenders analysis (by Company) Receipt and formal opening Comparison Clarification meetings Additional submissions Evaluation and recommendation Decision
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Prequalification of Contractors
Verification that Contractors have sufficient • Experience • Organization and resources • Financial solidity
Process managed by knowledgeable Owner team, not a single person
Qualification questionnaires are launched, received and analyzed
Contractor facility surveys are performed for each good-looking one
Finding enough contractors to assure competition may be a problem
Tenderers with complementary skills may form a Joint Venture
Prequalification may be performed through public advertisement
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“Call for tender” procedure
Objectives • Ensure a fair and equitable treatment of all tenderers • Select the best contractor after an open competition • Assure the best acceptable conditions for Owner
At the end of the selection process: • The successful tenderer should have full knowledge of the dossier • He shall not later be able not plead ignorance and dispute contract validity
A satisfactory tendering process has expected benefits for both
Clarifications will always be required during the process
Be ethical (any Owner has his own ethics rules)
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Opening the bids Two philosophies exist for Tenders opening
Same opening date for technical and commercial tenders Technical and contractual
Updated tenders
Analysis, clarifications, confirmations
Recommendation
Commercial
Two different opening dates for Technical commercial tenders
Commercial Short list
Updated tenders
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Analysis, clarifications, technical confirmations
Lowest bid selected
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Technical and contractual
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Tender period Tender Period: A reasonable tendering period shall to be allowed taking into account the project schedule, and the amount of work of tenderers are required to perform to complete the CFT.
Any request for extension of the tendering period shall be subject to approval. If such extensions are granted, all tenderers shall be informed by means of a Tender bulletin.
Tendering costs incurred by tenderers in connection with the bidding process shall normally be borne by the tenderers and this principle made clear in the CFT documents. However, the project may consider compensating unsuccessful Tenderers for the cost of tendering in certain circumstances (e.g. in the case of major EPC Contracts).
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Tender evaluation Tender Evaluation Procedure: the responses to the CFT shall be assessed technically and commercially against previously established criteria by a team of representatives of the technical, contractual and commercial functions, co-ordinated by the Owner or PMC.
It may be appropriate to include Partner/Shareholder personnel within the Tender Evaluation Team.
Organisation and criteria of the Tender evaluation must be recorded and approved in a contract specific Tender Evaluation Procedure which shall contain details on the evaluation.
Project should give careful consideration to opening only the technical packages first. This will allow a technical evaluation to be performed to decide whether or not Tenders are technically acceptable.
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Clarification meetings
Objective for Owner is to review and clarify with each Tenderer: • The Contract “execution plan” submitted, including the work schedule • The qualifications and alternatives submitted by the Tenderer • His reaction to the qualifications or suggestions made by other Tenderers • His position re. endorsement of the FEED and of the Long Lead Items
The clarification meetings will allow:
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• Owner to appreciate the understanding and motivation of Tenderers • Tenderers to improve their understanding of the Owner’s position • Owner to improve the dossier quality by taking into account comments
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Final selection Opening of final tenders and selection of the Contractor
After having checked that each tenderer has accepted (through his initialling) the Contract conditions, the Owner opens the commercial proposals.
The selection is made in principle on the lowest price basis.
If it is not the case, the Owner is usually requested to document his decision (detailed scored evaluations).
Accept at the last minute an uncontrolled price reduction from one contractor outside the normal procedure would be:
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• Unfair to other Tenderers • Counter-productive for future projects • Risky (Contractor will try to recover during the Contract execution)
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Design competition strategy (applicable to some mediumsize Projects) An EPC Contract can be negotiated on LSTK basis after a Design Competition (paid FEED and offer based on a limited Project Definition).
Allows to bring innovation and competition of designs
Basis of Design and minimum SOR requirements, Project objectives, areas open to new or novel « Design », evaluation criteria should be specified by Cy
FEED scope should be defined to avoid « short » FEED, although the FEED content may be lighter than required to be the basis for a later LSTK bidding
Areas of innovation should be followed-up by Company team in order that they fall under Company expectations
Company teams are needed at each Competitor’s office to follow the process
Equal treatment should be applied to both Competitors for fair competition
Company should ensure that key participants to the design competition can participate for each Bid (e.g. Process Licensors, Critical Equipment suppliers…)
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Project EPC contracting Key points to keep in mind
Good Project execution relies on “solid” contract, based on: • • • • •
Clear scope of work (clear for both) Confidence in each party performance capability Good definition and management of interfaces Review and Agreement, for each party, of all contracting aspects Openness to change, but risk management
Placing the EPC contract is a major Owner responsibility
Some EPC contracts need less Owner management resources than others, but any EPC contract has to be managed
A good contract is based on a win-win situation © 2011 - IFP Training
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ATTACHMENTS I.
Examples of Medium-Size projects
II.
Detailed tendering elements
III. EPC contract structure/contents © 2011 - IFP Training
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ATTACHMENT I Examples of Medium-Size projects
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EPC LSTK: Gas plant accro project Santa Barbara 2nd Train extension EPCC LSTK PROJECT (Compl. 1994): GRASS ROOTS PLANT (Compl. 1994) 2x400 MMSCFD Trains; 2nd Train to be completed rapidly
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Discuss Contracting Plan & contract type for Train 2 (Duplicate Train)
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Small project example
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ATTACHMENT II Detailed tendering elements STEPS
EVALUATION TABLE © 2011 - IFP Training
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Tendering detailed steps When an ITT includes a FEED, and if the construction execution plan is based on unit-rates contracts (x) per trade, the proposal critical path usually goes thru: Preparation of MTOs and BOQs for construction contracts
Issue of inquiry package to the potential construction contractors (unit rates contractors & others)
Preparation of bids by construction contractors
Receipt and review of these bids, Preparation of comparative construction estimates, finalization of construction estimate
Estimate of related « contingencies » (MTO allowances, provision for changes...)
Input to Project estimate
Finalisation of construction execution plan; Management Price reviews
Preparation of commercial proposal with corresponding required price break-downs and unit prices
Dispatching of the proposal (generally in sealed envelopes hand delivered at Owner designated office) (x) Unit-rates contracts are contracts with a unit price for « direct cost » of each item shown in Bill Of Quantities and a lump sum price for « indirect costs ». The lump sum price does not change as long as the contract estimated price (based on the estimated quantities) remains within +- x %
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Tendering detailed steps When the CFT is structured per common international practice for major projects, other main tasks include: FEED review / endorsement; CFT review
Preparation of clarification requests (follow format and watch dead line)
H.O manhours estimates
Bulks MTOs and estimate of MTO allowances
Preparation of requisitions and inquiries to Vendors, technical & commercial evaluation
Proposal Executive Summary
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Tendering detailed steps
Technical Offer preparation with, in general: • FEED endorsement report • Project Execution Plan (Engineering, Procurement, Construction, Commissioning, Project Controls, Materials Controls, Systems etc.), EPCC Schedule • Technical qualifications • Proposal Forms • A mandatory principle is to strictly answer Owner requirements and required proposal formats in the ITT
Commercial Offer preparation with, in general: • Prices and Price breakdowns • Unit prices and rates • Payment Conditions
• Commercial qualifications
CFT Agreement review and Legal qualifications And, if required, financing proposal
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• Bid Bond
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Example of tender evaluation table No
CATEGORY
Weight (A)
1.0 1.1 1.2 1.3 1.4 1.5 1.6
MANAGEMENT PROJECT MANAGEMENT CONTRACTUAL COMMERCIAL COMPLIANCE SUB-CONTRACTING QUALITY ASSURANCE & QUALITY CONTROL HEALTH, SAFETY & ENVIRONMENTAL PROCEDURES SCHEDULE COMPLIANCE CAPABILITIES AND PLANS DETAIL ENGINEERING PROCUREMENT FABRICATION, CONSTRUCTION & TESTING TRANSPORTATION, HOOK-UP, INSTALLATION & SURVEY PRE-COMMISSIONING & COMMISSIONING
3.0 3.1a 3.1b 3.2 3.3 3.4 3.5 3.6 3.7 3.8
PROJECT EXECUTION PLAN FOR DETAIL DESIGN RISERS – FLEXIBLE RISER SYSTEM RISERS – ORGANISED RISER SYSTEM FLOWLINES (PIPE-IN-PIPE or BUNDLE) SPOOLS & JUMPERS UMBILICALS OIL LOADING TERMINAL SPM BUOY OIL LOADING TERMINAL OIL OFFLOADING LINES FPSO MOORING SYSTEM INSTALLATION ANCHORS
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CONTRACTOR B Un-weighted Score Weighted Score (B) (A * B)
Sub Total:
3.0% 2.0% 2.0% 2.0% 2.0% 2.0% 13%
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
Sub Total:
4.0% 3.0% 8.0% 6.0% 6.0% 27%
0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00
Sub Total:
8.0% 8.0% 8.0% 8.0% 8.0% 7.0% 7.0% 6.0% 60%
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
OVERALL TOTAL:
100%
0.00
0.00
0.00
0.00
See Note
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2.0 2.1 2.2 2.3 2.4 2.5
CONTRACTOR A Un-weighted Score Weighted Score (B) (A * B)
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Example of tender evaluation table Example of tender evaluation table Scoring Criteria (1/2 point possible)
1 : unsatisfactory 2 : satisfactory
Safety
Quality
Specialists
Contracts Responsible
Average score
Weight coefficient
Weighted score
3 : good 2
Procurement quality management
3
Capability adapted to scope
3
Job conformance to tender
3
Conformance to contract terms
2
Conformance to schedule
3
Quality control performance
2
Safety control performance
3
Quality of studies & technical documents
1
Management administration of project
3
Adaptability to changes
1
Subcontractors selection quality
3
Relations with client
1
Social climate
1
Bank confidence
2
Comments : compulsory if score under 2
Total
33
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Evaluation /33 RC - PR GES - 08171_A_A - Rev.1 - 18/07/2013
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ATTACHMENT III EPC contract structure / contents
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Work scope typical contents
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Work scope typical contents
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Management of Medium-Size / Revamping Projects: course content I.
Introduction
II.
Preliminary Studies
III. Basic Engineering (or FEED) IV. EPC Contracting V.
Organization and Engineering
VI. Procurement VII. HSE, Quality and Risk Management IX. Construction and Fabrication Management X.
Completion / Commissioning / Start-up / Closure
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VIII. Project Control (cost/schedule)
2
Contracting Objectives / Strategy
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3
Objectives
Once the FEED is complete and the project approved: • Confirm the expected contract scope − Engineering Services − Equipment supplies − Fabrication, Construction, Installation
• Confirm Engineering contract type (Lump Sum or Reimbursable) • Select the Engineering Contractor(s) • Select LLI suppliers and place early orders if any
Process should comply with Owner requirements
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• Tendering policy, standard contractual terms, legal reviews • Authority approval levels, exception/waiver rules • Project cost/schedule constraints
4
Owner level
What does that mean for Owner ? • • • •
Owner has to take into account: • • • •
His own contracting rules and Project Management standards His internal resources available (or not) The overall project size: Revamping projects may not need splitting Availability, qualification, experience and management of contractors
Contract Strategy is critical for project cost and schedule performance
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How many contracts ? How to separate the Project into sub-projects ? Where to place interfaces ? how to minimize them? What type of contracts to be used ?
5
Contracting Objectives / Strategy
Contract: agreement between two or more parties, by which they commit themselves to fulfil pre-defined obligations
EPC contract for a Medium-Size / Revamping project: • Typical agreement between Owner and one Engineering Contractor • Typical Scope: Engineering, Procurement, Construction, till handover
EPC Contract: the tool by which, under certain conditions: • Contractor agrees to carry out the execution of the approved project • Owner agrees to compensate Contractor, according to contract terms
There are many subtle differences between a contract and a PO
Pay attention to: placing an order for a contract is fundamentally different to place an order for materials or equipments ... see next page
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6
Contracting Objectives / Strategy
CONTRACT In general will include several engineering … fabrication, construction
PURCHASE ORDER disciplines: For an equipment or materials issued from “standard” fabrication
May be performed at several sites including the final Fabrication will take place at supplier’s and /or subproject site supplier’s premises The contract documents are based on Company’s The purchase order is based on supplier’s definition as detailed requirement agreed by buyer The result of the work will be checked at the Owner The result of the supply will be agreed at delivery (with Site a warranty period) Overall responsibility of the Work, liability could be Responsibility limited to the supply and the compliance very large. i.e 100% with the specification.
May endorse several orders from the Company
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May be used for “packages”, several equipment for a specific process
© 2011 - IFP Training
Payment can be by unit rates, time rates, progress, Payment through milestones is the normal procedure milestones
7
New LPG tank + compressor LPG Rundown storage & loading Battery limits
LPG Loading & circulation pump
Boil off gas compressor LPG Storage tank © 2011 - IFP Training
How many contracts would you go for? What scope? Which type? RC - PR GES - 08171_A_A - Rev.1 - 18/07/2013
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Interfaces Examples of Interfaces Management,… Interconnecting Piping, Electricals, Controls…
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A few key questions Are there any preferred Vendors for specific equipment ? Why ?
Do you have any black-listed suppliers ? How should Contractors manage this ?
How is Cost important vs Schedule ? Is there a schedule window ?
What qualified resources does Owner have now ? And in the future ?
What can be the impact of the project construction on Facility performance ?
What is the level of knowledge of the plant by each Contractor ?
Have Contractors good relationship with local authorities ? Is it important ?
Which Contractors do you really trust ? Why ?
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EPC Contract scopes and types
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Possible scopes
Separate contracts • Not too common in Revamping projects (too many interfaces) • Owner keeps better control of activities, but needs resources
Combined contracts • EP: Engineering, Procurement (transportation may be included or not), and usually construction & commissioning assistance • EPC: Engineering, Procurement, Construction/Installation (Operations taking care of Commissioning/Startup). Common for Revamp projects • EPCC: E.P.C. + Commissioning • EPCCS: E.P.C. + Commissioning and Startup (very seldom for Revamps, but possible for Medium-Size grassroots projects, with Owner-loaned team)
Although Procurement is always included in the scope, the EPC contractor may have limited decision authority (sometimes none…)
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Possible scopes SEPARATE CONTRACTS
Pre-FEED, FEED, EPCI
Pre-FEED, FEED, EPCC
TURN-KEY
PRE-FEED
PRE-FEED
PRE-FEED
PRE-FEED
BASIC or FEED
BASIC or FEED DESIGN
BASIC or FEED DESIGN PROCUREMENT SERVICES FOR LONG LEAD ITEMS
BASIC or FEED DESIGN
PROCUREMENT
PROCUREMENT SERVICES FOR
LONG LEAD ITEMS
LONG LEAD ITEMS
DETAIL ENGINEERING
DETAIL ENGINEERING
DETAIL ENGINEERING PROCUREMENT
PROCUREMENT
PROCUREMENT
ASSIGNMENT
DETAIL ENGINEERING
PROCUREMENT
LONG LEAD ITEMS SUPPLY OTHER EQUIPMENT
SUPPLY
LONG LEAD ITEMS
ASSIGNED L.L. ITEMS
BULK MATERIALS
CONSTRUCTION
SUPPLY
OTHER EQUIPMENT
OTHER EQUIPMENT
OTHER EQUIPMENT
BULK MATERIALS CONSTRUCTION INSTALLATION
BULK MATERIALS
BULK MATERIALS
CONSTRUCTION
CONSTRUCTION
COMMISSIONING
COMMISSIONING
COMMISSIONING AND START UP
OPERATING TESTS
OPERATING TESTS
OPERATING TESTS
OPERATING TESTS
PERFORMANCE TESTS
PERFORMANCE TESTS
PERFORMANCE TESTS
PERFORMANCE TESTS
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COMMISSIONING
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Most common types
Lump Sum • Pros: clear definition of work, final price fixed, Contractor responsibility • Cons: long tendering period before contract award, rigidity, schedule • Common for Grassroots (even medium-size), difficult for Revamps
Reimbursable • Pros: quick contract award, global project schedule shortened, flexibility • Cons: final price not firm, large Owner supervision team • Owner may be assisted by a PMC (Project Management Consultant)
Payment on behalf:
similar to Reimbursable
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• Orders and Subcontracts placed by Contractor and paid by Owner • Pros: quick contract award, global project schedule shortened, flexibility • Cons: Owner directly exposed to Sub-Contractors and Vendors
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Variants
Lump Sum Turn Key: includes S/U (infrequent for revamp)
Reimbursable + Incentives: improves Contractor motivation • Target Price + bonus/malus • Incentive based on performance indices
• Schedule incentive • Cost + Fixed Fee (common for Umbrella contracts)
© 2011 - IFP Training
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Risk for owner Remaining risks for the Owner: Owner prepares the Plant base description (wrong description extra costs)
Owner is responsible of the Plant performance once the project is started
Plant incidents during project construction are typically not compensated
Owner has to manage early interface risks (FEED, early contracts, LLI)
An endorsement process is organised and put in place to reduce above risks
Owner has limited flexibility to make late scope changes (even if justified)
Schedule overruns may not be easy to recover and compensate
Too few Contractors able to perform the scope restrict Owner options
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Risk for owner
Mechanical completion
Construction and pre-commissioning
Punch lists
Commissioning
Ready for Commissioning (mechanical completion)
Ready for start-up
Start-up and performance tests
warranty period 18 months or 24 m
Provisional acceptance
Final acceptance
© 2011 - IFP Training
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Direct EPC Contracting option Idea Contracting Proceed to Concept or CFT
Concept and/ or Direct CFT
Approval and Contract Award
Detailed Engineering
Procurement (Simple Projects) Proceed to Basic
(Fabrication),Construction,
Basic (or FEED) Engineering
Commissioning, Start-Up, Perf.Tests Mechanical Completion Provisional Acceptance
Direct preparation of Project definition & requirements for CFT FID after potential Contractors Tenders evaluation & selection Depends on Contractors willingness to quote on this basis May allow alternate designs comparison(e.g debottlenecking)
Guarantee Period
© 2011 - IFP Training
• • • •
Final Acceptance RC - PR GES - 08171_A_A - Rev.1 - 18/07/2013
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Long Lead Items management
Long Lead Items / Critical Equipment should be limited to: • Equipment that cannot be delivered on time at site if selected and purchased at EPC Contract time (possible examples: LNG Tanks, large rotating equipment, MCHE, extra heavy vessels, pipelines materials…) • Equipment requesting rapid specific design finalization to fit the requirement of the project (possible examples: air coolers for air cooled modularized LNG Plant) • Equipment that Owner desires to select before EPC Contract Award for “standardisation” purpose (example: control systems)
For an EPC contract, all tasks regarding the procurement and the initial steps of the LLI supply remain under the responsibility of the Owner
The endorsement by EPC Contractor of the LLI supply has to be implemented as early as possible during the tendering phase
If applicable, Licensor packages may be considered as LLI (EPC Contractors are very reluctant to accept the Licensors guarantees)
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EPC Contract bidding process
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EPC Contract bidding process
CONTRACT STRATEGY PLAN
Contracts Scope / Split
COORDINATION MEETING
Identification of suitable Tenderers Tenderers
Selection
Award type / Schedule
PRE QUALIFICATION TENDER ISSUE PERIOD BIDDERS LIST
Unpriced / Priced Evaluation Exact Terms & Conditions + Scope
Tenderers complete CFT, clarification notices issued
TENDER EVALUATION
PREPARE CALL FOR TENDER (CFT)
Ranking & Selection
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APPROVAL
© 2011 - IFP Training
Contract Initialling
RECOMMENDATION TO AWARD
21
Call for Tender documents INSTRUCTIONS TO TENDERERS (Introduction & Instructions)
ITT
AGREEMENT & ANNEXES (Terms & Conditions)
AGR.
EXHIBITS & Attachments (Scope & Requirements) FEED dossier
Company Items
Particular Conditions
J
Subcontractors& Vendors
G
Coordination Procedure
K
Contractors Organisation
H
Quality
L
HSE
Scope
E
B
Schedule of Prices
F
C
Work Time Schedule
D
Performance Guarantees
© 2011 - IFP Training
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I
A
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Typical tendering procedure (medium-size project) Five Main Steps 3 months
4 months
3 months
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??
Prequalification of potential Tenderers Preparation of the call for tenders (by Company) Conditions for tender preparation & issue Contract conditions (clauses, prices, etc.) Scope of work and specifications Tenders preparation (by Tenderer) Price preparation (critical path) Technical and unpriced commercial Priced Commercial Tenders analysis (by Company) Receipt and formal opening Comparison Clarification meetings Additional submissions Evaluation and recommendation Decision
23
Prequalification of Contractors
Verification that Contractors have sufficient • Experience • Organization and resources • Financial solidity
Process managed by knowledgeable Owner team, not a single person
Qualification questionnaires are launched, received and analyzed
Contractor facility surveys are performed for each good-looking one
Finding enough contractors to assure competition may be a problem
Tenderers with complementary skills may form a Joint Venture
Prequalification may be performed through public advertisement
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“Call for tender” procedure
Objectives • Ensure a fair and equitable treatment of all tenderers • Select the best contractor after an open competition • Assure the best acceptable conditions for Owner
At the end of the selection process: • The successful tenderer should have full knowledge of the dossier • He shall not later be able not plead ignorance and dispute contract validity
A satisfactory tendering process has expected benefits for both
Clarifications will always be required during the process
Be ethical (any Owner has his own ethics rules)
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Opening the bids Two philosophies exist for Tenders opening
Same opening date for technical and commercial tenders Technical and contractual
Updated tenders
Analysis, clarifications, confirmations
Recommendation
Commercial
Two different opening dates for Technical commercial tenders
Commercial Short list
Updated tenders
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Analysis, clarifications, technical confirmations
Lowest bid selected
© 2011 - IFP Training
Technical and contractual
26
Tender period Tender Period: A reasonable tendering period shall to be allowed taking into account the project schedule, and the amount of work of tenderers are required to perform to complete the CFT.
Any request for extension of the tendering period shall be subject to approval. If such extensions are granted, all tenderers shall be informed by means of a Tender bulletin.
Tendering costs incurred by tenderers in connection with the bidding process shall normally be borne by the tenderers and this principle made clear in the CFT documents. However, the project may consider compensating unsuccessful Tenderers for the cost of tendering in certain circumstances (e.g. in the case of major EPC Contracts).
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Tender evaluation Tender Evaluation Procedure: the responses to the CFT shall be assessed technically and commercially against previously established criteria by a team of representatives of the technical, contractual and commercial functions, co-ordinated by the Owner or PMC.
It may be appropriate to include Partner/Shareholder personnel within the Tender Evaluation Team.
Organisation and criteria of the Tender evaluation must be recorded and approved in a contract specific Tender Evaluation Procedure which shall contain details on the evaluation.
Project should give careful consideration to opening only the technical packages first. This will allow a technical evaluation to be performed to decide whether or not Tenders are technically acceptable.
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Clarification meetings
Objective for Owner is to review and clarify with each Tenderer: • The Contract “execution plan” submitted, including the work schedule • The qualifications and alternatives submitted by the Tenderer • His reaction to the qualifications or suggestions made by other Tenderers • His position re. endorsement of the FEED and of the Long Lead Items
The clarification meetings will allow:
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• Owner to appreciate the understanding and motivation of Tenderers • Tenderers to improve their understanding of the Owner’s position • Owner to improve the dossier quality by taking into account comments
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Final selection Opening of final tenders and selection of the Contractor
After having checked that each tenderer has accepted (through his initialling) the Contract conditions, the Owner opens the commercial proposals.
The selection is made in principle on the lowest price basis.
If it is not the case, the Owner is usually requested to document his decision (detailed scored evaluations).
Accept at the last minute an uncontrolled price reduction from one contractor outside the normal procedure would be:
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• Unfair to other Tenderers • Counter-productive for future projects • Risky (Contractor will try to recover during the Contract execution)
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Design competition strategy (applicable to some mediumsize Projects) An EPC Contract can be negotiated on LSTK basis after a Design Competition (paid FEED and offer based on a limited Project Definition).
Allows to bring innovation and competition of designs
Basis of Design and minimum SOR requirements, Project objectives, areas open to new or novel « Design », evaluation criteria should be specified by Cy
FEED scope should be defined to avoid « short » FEED, although the FEED content may be lighter than required to be the basis for a later LSTK bidding
Areas of innovation should be followed-up by Company team in order that they fall under Company expectations
Company teams are needed at each Competitor’s office to follow the process
Equal treatment should be applied to both Competitors for fair competition
Company should ensure that key participants to the design competition can participate for each Bid (e.g. Process Licensors, Critical Equipment suppliers…)
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Project EPC contracting Key points to keep in mind
Good Project execution relies on “solid” contract, based on: • • • • •
Clear scope of work (clear for both) Confidence in each party performance capability Good definition and management of interfaces Review and Agreement, for each party, of all contracting aspects Openness to change, but risk management
Placing the EPC contract is a major Owner responsibility
Some EPC contracts need less Owner management resources than others, but any EPC contract has to be managed
A good contract is based on a win-win situation © 2011 - IFP Training
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ATTACHMENTS I.
Examples of Medium-Size projects
II.
Detailed tendering elements
III. EPC contract structure/contents © 2011 - IFP Training
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ATTACHMENT I Examples of Medium-Size projects
© 2011 - IFP Training
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EPC LSTK: Gas plant accro project Santa Barbara 2nd Train extension EPCC LSTK PROJECT (Compl. 1994): GRASS ROOTS PLANT (Compl. 1994) 2x400 MMSCFD Trains; 2nd Train to be completed rapidly
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Discuss Contracting Plan & contract type for Train 2 (Duplicate Train)
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Small project example
© 2011 - IFP Training
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ATTACHMENT II Detailed tendering elements STEPS
EVALUATION TABLE © 2011 - IFP Training
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Tendering detailed steps When an ITT includes a FEED, and if the construction execution plan is based on unit-rates contracts (x) per trade, the proposal critical path usually goes thru: Preparation of MTOs and BOQs for construction contracts
Issue of inquiry package to the potential construction contractors (unit rates contractors & others)
Preparation of bids by construction contractors
Receipt and review of these bids, Preparation of comparative construction estimates, finalization of construction estimate
Estimate of related « contingencies » (MTO allowances, provision for changes...)
Input to Project estimate
Finalisation of construction execution plan; Management Price reviews
Preparation of commercial proposal with corresponding required price break-downs and unit prices
Dispatching of the proposal (generally in sealed envelopes hand delivered at Owner designated office) (x) Unit-rates contracts are contracts with a unit price for « direct cost » of each item shown in Bill Of Quantities and a lump sum price for « indirect costs ». The lump sum price does not change as long as the contract estimated price (based on the estimated quantities) remains within +- x %
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Tendering detailed steps When the CFT is structured per common international practice for major projects, other main tasks include: FEED review / endorsement; CFT review
Preparation of clarification requests (follow format and watch dead line)
H.O manhours estimates
Bulks MTOs and estimate of MTO allowances
Preparation of requisitions and inquiries to Vendors, technical & commercial evaluation
Proposal Executive Summary
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Tendering detailed steps
Technical Offer preparation with, in general: • FEED endorsement report • Project Execution Plan (Engineering, Procurement, Construction, Commissioning, Project Controls, Materials Controls, Systems etc.), EPCC Schedule • Technical qualifications • Proposal Forms • A mandatory principle is to strictly answer Owner requirements and required proposal formats in the ITT
Commercial Offer preparation with, in general: • Prices and Price breakdowns • Unit prices and rates • Payment Conditions
• Commercial qualifications
CFT Agreement review and Legal qualifications And, if required, financing proposal
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• Bid Bond
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Example of tender evaluation table No
CATEGORY
Weight (A)
1.0 1.1 1.2 1.3 1.4 1.5 1.6
MANAGEMENT PROJECT MANAGEMENT CONTRACTUAL COMMERCIAL COMPLIANCE SUB-CONTRACTING QUALITY ASSURANCE & QUALITY CONTROL HEALTH, SAFETY & ENVIRONMENTAL PROCEDURES SCHEDULE COMPLIANCE CAPABILITIES AND PLANS DETAIL ENGINEERING PROCUREMENT FABRICATION, CONSTRUCTION & TESTING TRANSPORTATION, HOOK-UP, INSTALLATION & SURVEY PRE-COMMISSIONING & COMMISSIONING
3.0 3.1a 3.1b 3.2 3.3 3.4 3.5 3.6 3.7 3.8
PROJECT EXECUTION PLAN FOR DETAIL DESIGN RISERS – FLEXIBLE RISER SYSTEM RISERS – ORGANISED RISER SYSTEM FLOWLINES (PIPE-IN-PIPE or BUNDLE) SPOOLS & JUMPERS UMBILICALS OIL LOADING TERMINAL SPM BUOY OIL LOADING TERMINAL OIL OFFLOADING LINES FPSO MOORING SYSTEM INSTALLATION ANCHORS
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CONTRACTOR B Un-weighted Score Weighted Score (B) (A * B)
Sub Total:
3.0% 2.0% 2.0% 2.0% 2.0% 2.0% 13%
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00
Sub Total:
4.0% 3.0% 8.0% 6.0% 6.0% 27%
0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00
Sub Total:
8.0% 8.0% 8.0% 8.0% 8.0% 7.0% 7.0% 6.0% 60%
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
OVERALL TOTAL:
100%
0.00
0.00
0.00
0.00
See Note
© 2011 - IFP Training
2.0 2.1 2.2 2.3 2.4 2.5
CONTRACTOR A Un-weighted Score Weighted Score (B) (A * B)
46
Example of tender evaluation table Example of tender evaluation table Scoring Criteria (1/2 point possible)
1 : unsatisfactory 2 : satisfactory
Safety
Quality
Specialists
Contracts Responsible
Average score
Weight coefficient
Weighted score
3 : good 2
Procurement quality management
3
Capability adapted to scope
3
Job conformance to tender
3
Conformance to contract terms
2
Conformance to schedule
3
Quality control performance
2
Safety control performance
3
Quality of studies & technical documents
1
Management administration of project
3
Adaptability to changes
1
Subcontractors selection quality
3
Relations with client
1
Social climate
1
Bank confidence
2
Comments : compulsory if score under 2
Total
33
© 2011 - IFP Training
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Evaluation /33 RC - PR GES - 08171_A_A - Rev.1 - 18/07/2013
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ATTACHMENT III EPC contract structure / contents
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Work scope typical contents
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Work scope typical contents
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